Insurance News for 5/29/2020
Business interruption insurance has been a much-debated topic during the coronavirus crisis, with some businesses already pushing back against virus-related claim denials
In several cities, groups of businesses have filed lawsuits challenging virus exclusions in their business interruption policies, such as recent claimants in Philadelphia and Chicago. Additionally, legislators in various states have proposed bills that, if passed, would mandate business interruption insurers cover COVID-19-related claims.
However, the insurance industry has held firm that business interruption insurance was not designed or priced to cover virus-related losses as they typically do not meet the requirement for physical damage in a business interruption policy, with most policies containing clear exclusions.
For agents aiming to address clients' concerns, transparency is key, according to panelists during Insurance Journal's April 8 webinar on business interruption and the coronavirus.
"It's all about setting expectations," Doug Jones, managing director at JAG Insurance Group, said. "If you lead somebody to believe that this is going to be a positive outcome, then that's what they're going to expect. And that may lead to retention issues on your part."
It's important to be honest with clients about the scope of their business interruption policy and the likelihood of their claim being denied, according to Chris Boggs, executive director of Risk Management and Education at Big I Virtual University. However, agents should still be willing to file a claim on the client's behalf if asked, he added.
"You need to explain the policy as you understand it," he said. "But if your insured says, 'I want to submit a claim...' submit the claim. Do not talk them out of submitting a claim."
Jones said his agency has received "hundreds of calls" regarding filing claims. Still, the agency aims to do business as transparently as possible.
"If a client calls us and says, 'I heard this is going on in Louisiana,' or, 'This is going on in California,' we give our side of the story, and ultimately, if the client wants to file a claim, they can file a claim," he said.
Don Hayden, co-founder and partner at Mark Migdal & Hayden, added that it's important for agents to do this to avoid any potential errors and omissions (E&O) claims as a result of the pandemic.
"There's no basis for an E&O claim against you if you filed a claim when you were asked to file the claim," he said. "You have to remember you're the broker. You're not the insurer. It's for the insurer to accept or deny the claim."
Claim Denial Litigation
While agents try to be transparent and work with clients, litigation has already occurred regarding business interruption claim denials. A Minnesota dentist, an Ohio bridal shop and a New York pizzeria are among six small businesses that are the latest to sue insurers seeking compensation for business interruption claims due to the coronavirus crisis, Insurance Journal previously reported. The lawsuits, which are class actions, have been filed against Aspen American Insurance, Auto-Owners Insurance, Lloyd's of London, Society Insurance, Oregon Mutual Insurance, and Topa Insurance Co.
And Hayden says there are likely more where those came from.
"Just because we're taking the position that this is not a covered claim does not mean that there will not be litigation," he said,
adding that he believes there will be more attempts by lawyers to file bad faith claim or claims on the denial of coverage.
"I could imagine someone saying that somehow the virus infiltrated [the] ventilation system in [their] building and that it caused physical damage to the property or something like that. But they have to prove that. And with this virus, there's no physical damage to the property."
'There's no basis for an E&O claim against you if you filed a claim when you were asked to file the claim.'
Other Areas of Concern
However, business interruption isn't the only concern for businesses during this crisis, panelists added.
"I think we're going to see a ton of workers' comp claims from people being sick on the job," Jones said.
"I've already heard multiple reports about many, many, many people getting sick on the job."
He added that employment practices liability is another area of insurance to watch for claims cropping up as workers continue to experience layoffs.
"There have been six and a half million people let go from their jobs," he said.
"We are going to have a lot of people that got maybe half the workforce laid off. Those other half can't find a job, and they're going to look back at their employer and say, 'Why them and not me?' Or, 'Why me and not them?' I think we're going to see a rash of employment practice liability claims for wrongful termination."
Hayden agreed, adding that as more employers are set to make difficult decisions about their workforce, there will likely be questions of whether workforce reductions or layoffs were appropriate or if there was sexual or age discrimination. All of this could lead to additional monetary concerns for an already financially challenged small business sector.
Client Retention Concerns
In fact, for agents worried about client retention during such a tumultuous time, the biggest cause for concern isn't clients who are unhappy with claim denials, panelists said.
"I think your biggest concern is going to be really the small businesses that you have as clients not making money," Jones said.
"I was talking to an agent in California as a matter of fact, and the majority of his book - I think it was 80% of his book - was hospitality and restaurants," he said. "He was talking about how he's looking at a loss of 40% of his insureds just going out of business."
Although business interruption insurance does not typically cover virus-related losses, Jones said he is still encouraging clients to keep track of losses in case there's an opportunity to recover any money down the road.
"We as a firm are encouraging all of our clients to keep track of their losses, keep track of the payroll that they're still paying, the lost revenue, the bills," he said. "That way, in the event that one day, near or far, there's an opportunity to recover money, they're still set up. So we're not closing the door absolutely."
Boggs emphasized that documentation is key.
"Document everything. Document the conversations. Document their decisions. Make sure it's in writing. Have them sign off on it, promise their firstborn, whatever," he said.
"You can never have too much documentation, but you can have too little."
In the future, this data can be used to support a business interruption claim if there is any chance of finding coverage later, Hayden said.
"Who knows. Down the road, we may be all wrong, and there may be a kink in the armor of the insuring agreement and the exclusion, and there is found to be some way of getting coverage," he said.
'I think your biggest concern is going to be really the small businesses that you have as clients not making money.'
New Pandemic Coverage
That said, Hayden stated it's unlikely any new coverage will be developed in the future to cover some of the virus-related losses brought to light due to this pandemic, and if it is, the coverage will probably be too costly for most policyholders.
"Even if there are policies available, they're going to be cost prohibitive," he said.
"Doing a cost benefit analysis, you're going to decide, 'I'd rather take the riff than pay this ridiculous premium for a narrow coverage that's going to be very narrowly defined.'"
Boggs explained that flood coverage can illustrate this.
"A lot of people buy flood coverage only because they're required to by the federal government when they buy a federally backed loan," he said.
He pointed to one example of an agent he knows whose client paid off his house and was no longer required to purchase flood insurance.
"This guy so much hated paying for flood coverage that the day he paid off his house, he walked to the agent's office, stood outside the agent's office, took the flood policy, took a lighter, lit it on fire and canceled his policy," he said.
The client canceled his policy because he believed it was cost-prohibitive since it only covered one thing, Boggs added.
"People would say after the loss, 'Yeah, I definitely would've paid for it,'" he said. "No they wouldn't."
Jones used terrorism insurance as another example.
"In 15 years, I haven't sold a terrorism policy that wasn't required by a lender," he said. "Not one. Not a single time. And I think the same will ring true with any future pandemic policies that come out."
Pay Attention to Exclusions
With this in mind, panelists added it is good practice for policyholders to pay attention to exclusions, as they can be an important indicator of what additional coverage may be worth the cost.
"If you see something excluded from your policy, that's because the insurance company and its actuaries and its team members are prepared and know that this is not in their best interest," Jones said.
"And it might not be because, 'Hey, we're just the bad guy, and we don't want to help people.' It would be detrimental to their business..."
Often, products can be purchased on a mono-line basis to provide coverage for areas that are excluded, he said, and business owners should ensure that they are prepared for something that may not be covered by insurance.
"Be concerned about the things excluded from your policy," Jones said. "Because that is what the insurance company is concerned about."
Source: My New Markets – 5/28/20 Author: Elizabeth Blosfield
The insurance industry has long been plagued with a complete supply and demand imbalance when it comes to talent. That was true before the coronavirus struck, and it certainly remains true as the pandemic evolves. The crux of the matter is a major demographic shift, with the number of people in the industry becoming eligible for retirement being exponentially higher than the number of younger people interested in joining the insurance workforce.
While this has been a troubling equation for the industry for some time, now we have the added anomaly of the COVID-19 pandemic to consider. There are multiple ways, both positive and negative, that the coronavirus could impact insurance talent acquisition. For example, the pandemic might cause some individuals to delay their retirement plans based on economic issues or retirement funds. If that happens to a large degree, the demand for immediate talent might reduce. On the supply side of the equation, if there’s a significant economic bounce back later in the year and a lot of re-employment, then insurers will have to compete more for those in the talent pool.
There are also positives to consider, according to Jon Loftin (pictured), president and COO of MJ Insurance. He said: “While definitely not immune from downward economic cycles, the insurance industry is more resilient than most. As we saw in the financial crisis in 2008/2009, the insurance industry was very resilient, and did not have a downturn in unemployment. In fact, some people were aggressive coming out of it and they hired earlier than most. They were able to get some good talent based on the idea that insurance really is a stable industry. When people get shocked the way they’ve been shocked by the coronavirus, they start to think about working in a stable industry rather than being in one that’s volatile and susceptible to a recession.”
Another strength that’s been revealed through COVID-19 is the insurance industry’s ability to innovate. The industry had to react very quickly to a completely remote workforce, and, despite some understandable anxiety around IT infrastructure and the potential impact on the customer experience, the mandatory remote work experiment has been a huge success.
“One of the outcomes of this will be the digitization of the customer experience,” Loftin told Insurance Business.
“The introduction of technology into the insurance space is going to be a really positive thing coming out of this for everybody involved. [It will give people the confidence to] do business digitally in what has traditionally been a very technology-archaic industry that’s been slow to change. I think this is going to be the catalyst to accelerate change in the industry, and one of the by-products of that is being able to attract talent that are digital and technology natives. That helps the industry tremendously. I certainly know my peers and colleagues from around the country are excited about that opportunity. It’s a real positive coming out of the crisis.”
There will also be some new challenges associated with the coronavirus for the industry to overcome. First and foremost, insurers will have to do some work to rebuild trust among consumers. Over the past six weeks, there has been a lot of coverage disputes between consumers and the industry, especially around business interruption caused by mandatory shutdowns. As Loftin pointed out, people who are less informed as to what the disputes are really about could quite easily see an insurer’s denial of a claim as a violation of trust, especially in a time of such economic hardship.
“For the first time in a long time [pre-COVID], I think the industry really started to do a good job of articulating the noble cause it serves in times of crisis and [how it] rebuilds communities that are stricken by natural disasters and things like that,” said Loftin.
“What’s going on today is very public in terms of the media, and understandably so, as there’s a genuine dispute as to what’s covered and what’s not covered as a result of this pandemic. Might a person contemplating employment in the industry think: ‘I don’t want to be any part of that?’ Certainly, but I hope not."
“I think the industry needs to do a better job of promoting the good work that we do for people. Look at Nashville, Tennessee - they recently had a F4 tornado and excess of $1 billion in damage, but there’s very little coverage on what the insurance industry is doing there to pick that back up. We must do a better job of patting ourselves on the back when we are doing good and show people what a noble industry this is.”
Source: Insurance Business America -- 5/29/20 Author: Bethan Moorcraft
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